2 Views on Vertex Pharmaceuticals Stock: Short Term vs. Long Term

There's a lot for investors to really like about Vertex Pharmaceuticals (NASDAQ: VRTX). The company reached profitability earlier this year. It has reported a string of positive clinical results for its cystic fibrosis drugs. And, oh yes, the stock has more than doubled so far in 2017.

Chief Commercial Officer Stuart Arbuckle answered questions at the Morgan Stanley healthcare conference on Monday, and his comments highlighted the two totally different ways investors should be looking at Vertex. Here are the fast-growing biotech's short-term and long-term challenges and opportunities.

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Short term

I'll arbitrarily define short-term for Vertex as the next 12 months, and the company faces several challenges over that time frame. One of the most important is securing reimbursement deals in Europe for Orkambi. Vertex locked up deals for the cystic fibrosis combination treatment with Ireland and Italy, but the big one remains outstanding -- France. Arbuckle would only say that discussions with the French government were "ongoing and very active," but it's too soon to know how quickly negotiations will wrap up.

Another issue that could come up for Vertex in its next quarterly update is seasonality of sales for Orkambi. The company saw a reduction in compliance last summer as patients obtained refills more slowly and seemed to take breaks from treatment. Arbuckle stated that summer compliance is a "front-and-center issue" for Vertex.

Also on the agenda are label extensions for Orkambi. Vertex awaits regulatory approval in the age 6 to 11 population in Europe. The company received U.S. approval for this pediatric demographic a year ago. Arbuckle said that Vertex isn't likely to seek any additional label extensions for Kalydeco (one of the two drugs that make up Orkambi).

Another key short-term hurdle for Vertex is winning approval for its two-drug combination of tezacaftor and Kalydeco. The company reported glowing results from a couple of phase 2 studies for the combo earlier this year, and an FDA decision is expected by Feb. 28.

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Arbuckle thinks this combo is underappreciated by some. Although he admits that the market life for the tezacaftor/Kalydeco regimen could be short-lived (due to three-drug combos on the way), he sees it as a great option for patients who haven't taken Orkambi yet, and for the roughly 30% of patients who discontinue Orkambi because of side effects.

Long term

Naturally, Vertex's longer-range outlook features both potential opportunities and the risk of headwinds. On the negative side is the possibility of competition. Galapagos (NASDAQ: GLPG) trails Vertex in the race to bring a triple-drug combo to treat cystic fibrosis to market, but the biotech expects to start clinical studies in the fourth quarter.

Arbuckle acknowledged that Vertex would have rivals on its heels at some point. However, he said his company's strategy is to move as quickly as it can to stay ahead of the competition. He also stressed that Vertex wants to "set the bar high" for any potential rivals.

Vertex's triple-drug combos present the company's greatest long-term opportunity. Arbuckle said positive data from studies so far gives the biotech confidence that it will be able to deliver on its mission of developing an effective daily treatment for 90% of cystic fibrosis patients. This long-term opportunity depends on a relatively short-term decision, though. Arbuckle said that Vertex must determine which candidates appear to present the best efficacy and tolerability before initiating pivotal studies for one or two combos in the first half of 2018.

Over the next several years, Vertex hopes to even move beyond the triple-drug combos and beyond cystic fibrosis. The company formed a partnership with CRISPR Therapeutics (NASDAQ: CRSP) in 2015 to explore the use of gene editing in treating genetic diseases. This collaboration includes efforts that target cystic fibrosis and sickle cell disease.

Arbuckle said that Vertex plans to continue to focus its research and development efforts on serious diseases that have validated genetic or pharmacologic targets and that are in specialty markets. He added that it's important that the company be able to develop in vitro assays that can predict whether a drug will work for a specific patient.

Time is on its side

I wouldn't be surprised if Vertex stock pulls back somewhat, especially if the company's third-quarter results show a seasonal impact on Orkambi sales, or if reimbursement negotiations with France drag out longer than anticipated. However, focusing too much on these issues -- if they occur -- would literally be short-sighted.

Vertex has a tremendous pathway for growth thanks to its big head start in developing effective treatments for cystic fibrosis. Its expansion into other rare diseases presents yet another great opportunity for growth. I also like that the company has its eye on gene editing through its partnership with CRISPR Therapeutics. My view is that Vertex Pharmaceuticals remains one of the most exciting long-term growth prospects in the biopharmaceutical industry. I think that time is definitely on this high-flying biotech's side.

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